CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The incidence of fraud and misappropriation of funds in recent time poses a threat
to auditing as a branch of accounting profession because of its perennial nature.
This has resulted to questions as to whether auditing actually play any significant
role towards the attainment of accountability and prevention of fraud especially
that which is currently happening in our major or key financial institutions.
Most of our financial institutions today fail to recognize that the phenomenon
“fraud” can appear to be more dangerous when compared to other forms of
problem like armed robbery attack which can only affect the institution within a
short period of time, such may have no long term effect on their operations.
However, any significant fraud committed in an institution, not only undermines or
shakes up it’s financial stability but can severely affect the reputation of the
institution thereby resulting to investor’s loss of confidence.
Most times, the directors write off losses of fraud (including money laundering)
under the general heading of “bad debt” rather than admitting that there have been
a general failure to exercise or implement proper safeguards in the system of
internal checks and control or managerial negligence in applying or perfecting the
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appropriate oversight to routine business process where institutions funds and
assets are at risk. In order to counter, stop and prevent the perpetration of such
frauds comes forensic auditing or accounting.
Forensic auditing or accounting is the specialty practice area of accounting that
describes engagements that results from actual or anticipated disputes or litigation.
“forensic” means “suitable for use in a court of law” and it is to that standard and
potential outcomes that forensic accountants also referred to as forensic auditors
or investigative auditors, often have to give expert evidence at the eventual trial of
companies and institutions who have committed fraud, in a court of law.
1.2 STATEMENT OF THE PROBLEM
This topic “the usefulness of forensic auditing in prevention and detection of
fraud” was conducted to focus on most important problems facing a corporate
organization. The failure of statutory audit to prevent and reduce misappropriation
of corporate and an increase in corporate crimes has put pressure on the
professional accountant and legal practitioner to find a better way of exposing this
evil frame in business world such as.
• The problems of loss of customers/depositors
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• The persistent increase in business failures fuelled or encouraged by frequent
incessant fraudulent activities in our financial institutions.
• The problem of lack of confidence on the part of the investing public to commit
their resources to financial institutions due to fraud.
• The problem of how financial institutions to embrace forensic audit as a useful
tool in prevention and detection of fraud.
1.3 STATEMENT OF THE OBJECTIVES
The general objective of this study is to inculcate the knowledge of forensic
auditing in preventing and detecting corporate fraud in Nigeria. Though the main
objective of forensic auditing will vary according to the purpose of hiring
individual or entity, the essence of this study is to employ the new knowledge to
uncover fraud, crimes and evasions of financial obligations or malpractices
committed through manipulation of accounting records. The specific objectives of
this study are as follows;
• To establish the reason for the loss of customer/depositors
• To investigate how incidence of fraud, encourages or leads to business/bank
failures
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• To examine the reason behind investors loss of confidence toward investing or
depositing in financial institutions;
• To ascertain how forensic audit has been a useful tool in prevention and
detection of fraud in our financial institutions
1.4 RESEARCH QUESTIONS
In order to achieve the objective of the study, the following research hypothesis
have been raised, providing answers to them will help achieve the aim of this
work. These questions includes;
• How do financial institution loss their customers/depositors.?
• In what way would high and frequent committing of fraud lead to or encourage
business failure?
• How would frequent fraud occurrence lead to investors loss of confidence in
investing their resources?
• Why forensic audit is considered a useful tool in prevention and detection of
fraud in financial institution?
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1.5 STATEMENT OF HYPOTHESES
The statement of hypothesis provides a measurement criterion that keeps the
researcher on the main line of the study (Osuala 1982:44). In order words, it is “a
speculation of the way the variables of study behaves” it is a guide method to be
used in their analysis. The needs for such guides rise to the following hypothesis;
HYPOTHESIS ONE
H0: There is no loss of customers/depositors in financial institutions.
H1: There is loss of customers/depositors in financial institutions.
HYPOTHESIS TWO
H2i: There is no significant relationship between frequent occurrence of fraud
and investors loss of confidence in financial institution.
H2ii: There is a significant relationship between frequent occurrence of fraud and
investors loss of confidence in financial institution.
HYPOTHESIS THREE
H3i: There is no significant need to employ a forensic auditor in a financial
institution.
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H3ii: There is a significant need to employ a forensic auditor in financial
institutions.
1.6 SIGNIFICANCE OF THE STUDY
This study will be of great importance to the government since it will help to
determine the actual income of every companies and banks so as to pay the exact
tax. It will also give them positive insight on how to fight this evil menace called
corruption in the country. It will also be of great benefit to the corporate world as
the effective work of forensic auditors will help prevent, reduce and detect fraud
and other corporate crimes in an organization it will help the investors and
depositors to know the financial position of the institution they are investing in if it
is going to be a profit venture or not, and also to schools and students, it will serve
as a reference point for future researchers who will want to research more on the
topic.
1.7 SCOPE OF THE STUDY
This study was designed to discuss the usefulness of forensic audit in preventing
and detecting fraud in an organization” the research will be restricted to the two
selected banks in Enugu state.
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1.8 LIMITATION OF THE STUDY
I was confronted with some problems when carrying out this research. These
problems include.
Uncorporative attitude of some of my respondents:- some of the respondents
refused to fill my questionnaires and some refuse to return the filled ones.
Problem of school exeat: Due to the nature of my school I was confronted
with the problem of permission to leave school to carry out my research such
as sharing and collection of questionnaires and other materials relevant to
my research work.
Financial problems:- the success of my research work depends on the
finance availability and this affected the researcher because the finance at his
disposal was not sufficient to carry out the research effectively.
Time:- this has to do with the time-frame given for the completion of the
study and also other challenges; activities and engagements forcing me as a
final year student reduced my time-frame.
1.9 DEFINITION OF TERMS.
FORENSIC ACCOUNTING:- It is a specially practice area of accounting that
describes engagements that results from anticipated disputes or litigations.
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FORENSIC: According to oxford advance learners dictionary means connected
with or used in the court to law.
INVESTIGATIVE ACCOUNTING: This is the reviews of the factual situation of
a company and suggest possible course of action.
WHITE-COLLAR CRIME:- Edwin Sutherland in 1939 defines it as “a crime
committed by a person of respectability and high social status in the course of his
occupation.
It is a financially motivated nonviolent crime committed for illegal monetary gain.
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